Stochastic Calculus
Girsanov's Theorem for Dummies
Two probability worlds, the same paths: change the measure and the drift moves, the volatility doesn’t.
What to remember
- Changing measure shifts the drift and leaves the volatility alone.
- Equivalent measures agree on which events are impossible.
- Under the risk-neutral measure every asset grows at r.
Read the lessonGirsanov's Theorem, with a checkpoint at the end.